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3 Stocks for Those Seeking Safety

Hough: Worried about a summer sell-off for the market? Consider these shares.

By

JackHough

Don't expect the stocks below to escape losses entirely if the broad market slides this summer. But history says they hold up relatively well in downturns, making them a good fit for jittery investors who want to stay in the market.

There's plenty to worry about. Spain's 10-year government bonds are flirting with 6% yields, close to what U.S. companies with junk credit ratings pay. That shows that investors aren't fully confident about Spain's ability to ultimately pay what it owes. Spain, whose economy is four times the size of Greece's, has a key bond auction scheduled for Thursday.

In the U.S., earnings season has brought mostly upside surprises, but not much growth. That's because forecasts were lowered so much over the past seven months that positive surprises aren't much of a surprise. If earnings growth is fizzling, and if earnings were what drove stock prices sharply higher over the past three years, then stock gains may now prove harder to come by.

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Yet stocks remain reasonably priced relative to earnings, and the alternatives look lousy. A 10-year, inflation-protected Treasury bond yields slightly less than zero. Better to swap risky shares for safe ones than to commit more money to sure losses with bonds.

The stocks below have low "betas," which means they have tended to swing less wildly than the broad market in recent years. The have modest prices relative to their earnings, which makes them better suited than pricey stocks to a broad slowing of earnings growth. And they pay healthy dividends, which will be a welcome source of returns if market gains prove smaller in coming years. Lastly, they sell goods and services that tend to find stable demand in good and lean years.

Abbott Laboratories makes drugs, nutritional products and medical devices. On Wednesday, it topped Wall Street's earnings forecasts and, perhaps more important for investors, raised its 2012 guidance. The company reported 4.6% sales growth, including 7.1% growth in its key proprietary drug division and 10.1% growth in nutritionals, which include Similac baby formula and Ensure meal replacement drinks. Abbott plans to spin off its drug business later this year in order to try to attract a higher valuation for its remaining businesses. The company has paid dividends since 1924, and is a member of the S&P Dividend Aristocrats, which have increased their payments for at least 25 years running.

By 2040, world economic output will double, the population will swell to more than nine billion and demand for energy will rise 30%. So says Exxon Mobil in its latest long-term energy forecast. The company right now is enjoying rising profits thanks to high oil prices and strong overseas demand, amid a production boom in U.S. shale fields. But it is also investing heavily in natural gas, whose price has sagged to near decade lows on a glut in supply. That's because Exxon expects demand for natural gas to rise 80% by 2040 as it supplants coal as a fuel for power plants. Energy prices can be volatile, but Exxon stock has been a steady performer, and it trades at a discount of about one-quarter to the broad market.

Wal-Mart raised its dividend payment nearly 9% last month. It also spent $6.3 billion to buy back shares during its fiscal year ended Jan. 31. That's about 3% of its current stock market value, putting the company's total payout to shareholders (dividends plus repurchases) at more than 5.5%. The company has raised its dividend each year since 1974. Last year, Wal-Mart reversed a two-year sales decline at longstanding U.S. stores. Recently, it has signalled a push to better compete for online sales with the likes on
AMZN, -0.27%
creating an e-commerce committee, appointing a
GOOG, +0.40%
executive to its board and hiring software developers in India.

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